Accounting 302 exam

Under IFRS, a provision is the same as: A) a contingent liability. B) an estimated liability. C) a contingent gain. D) None of the above.

B

15. Which of these is not included in an employer's payroll tax expense? A) Federal income taxes B) State unemployment taxes C) F.I.C.A. (social security) taxes D) Federal unemployment taxes

A

2. In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows, A) a new effective-interest rate must be computed. B) no interest expense or revenue should be recognized in the future. C) a gain should be recognized by the debtor. D) a loss should be recognized by the debtor.

A

21. When is a contingent liability recorded? A) When the future events will possibly occur and the amount can be reasonably estimated. B) When the amount can be reasonably estimated. C) When the future events are probable to occur and the amount can be reasonably estimated. D) When the future events are probable to occur.

A

22. Which of the following situations may give rise to unearned revenue? A) Selling magazine subscriptions. B) Providing manufacturer warranties. C) Selling inventory. D) Providing trade credit to customers.

A

23. Slack Inc. borrowed $320,000 on April 1. The note requires interest at 12% and principal to be paid in one year. How much interest is recognized for the period from April 1 to December 31? A) $28,800. B) $25,600. C) $0. D) $38,400.

A

7. Jenks Company financed the purchase of a machine by making payments of $20,000 at the end of each of five years. The appropriate rate of interest was 8%. The future value of one for five periods at 8% is 1.46933. The future value of an ordinary annuity for five periods at 8% is 5.8666. The present value of an ordinary annuity for five periods at 8% is 3.99271. What was the cost of the machine to Jenks? A) $79,854 B) $100,000 C) $117,334 D) $29,588

A

9. Palco Co., which has a taxable payroll of $900,000, is subject to FUTA tax of 0.8% and a state contribution rate of 5.4%. However, because of stable employment experience, the company's state rate has been reduced to 2%. What is the total amount of federal and state unemployment tax for Palco Co.? A) $25,200 B) $36,000 C) $104,400 D) $73,800

A

A plant site donated by a township to a manufacturer that plans to open a new factory should be recorded on the manufacturer's books at A) its fair value. B) the value assigned to it by the company's directors. C) one dollar (since the site cost nothing but should be included in the balance sheet). D) the nominal cost of taking title to it.

A

Alonzo Co. acquires 3 patents from Shaq Corp. for a total of $270,000. The patents were carried on Shaq's books as follows: Patent AA: $5,000; Patent BB: $2,000; and Patent CC: $3,000. When Alonzo acquired the patents their fair values were: Patent AA: $20,000; Patent BB: $240,000; and Patent CC: $60,000. At what amount should Alonzo record Patent BB? A)$202,500 B) $180,000 C) $2,000 D) $90,000

A

Barton Corporation acquires a coal mine at a cost of $1,800,000. Intangible development costs total $360,000. After extraction has occurred, Barton must restore the property (estimated fair value of the obligation is $180,000), after which it can be sold for $210,000. Barton estimates that 5,000 tons of coal can be extracted. What is the amount of depletion per ton? A) $426 B) $384 C) $468 D) $360

A

Downing Company issues $4,000,000, 6%, 5-year bonds dated January 1, 2014 on January 1, 2014. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 5%. What are the proceeds from the bond issue? ff 2.5% 3.0% 5.0% 6.0% Present value of a single sum for 5 periods .88385 .86261 .78353 .74726 Present value of a single sum for 10 periods .78120 .74409 .61391 .55839 Present value of an annuity for 5 periods 4.64583 4.57971 4.32948 4.21236 Present value of an annuity for 10 periods 8.75206 8.53020 7.72173 7.36009 A) $4,175,047 B) $4,173,195 C) $4,000,000 D) $4,173,847

A

During self-construction of an asset by Richardson Company, the following were among the costs incurred: Fixed overhead for the year $1,000,000 Portion of $1,000,000 fixed overhead that would be allocated to asset if it were normal production 80,000 Variable overhead attributable to self-construction 100,000 What amount of overhead should be included in the cost of the self-constructed asset? A) $180,000 B) $ 80,000 C) $100,000 D) $ -0-

A

Elmer Corporation has $1,800,000 of short-term debt it expects to retire with proceeds from the sale of 50,000 shares of common stock. If the stock is sold for $20 per share subsequent to the balance sheet date, but before the balance sheet is issued, what amount of short-term debt could be excluded from current liabilities? A) $1,000,000 B) $1,800,000 C) $800,000 D) $0

A

If income tax effects are ignored, accelerated depreciation methods A) tend to offset the effect of steadily increasing repair and maintenance costs on the income statement. B) tend to decrease the fixed asset turnover ratio. C) increase funds provided by operations. D) provide funds for the earlier replacement of fixed assets.

A

In recent year Cey Corporation had net income of $500,000, interest expense of $100,000, and a times interest earned ratio of 9. What was Cey Corporation's income before taxes for the year? A) $800,000 B) $900,000 C) None of these D) $1,000,000

A

On December 1, 2014, Hogan Co. purchased a tract of land as a factory site for $750,000. The old building on the property was razed, and salvaged materials resulting from demolition were sold. Additional costs incurred and salvage proceeds realized during December 2014 were as follows: Cost to raze old building $70,000 Legal fees for purchase contract and to record ownership 10,000 Title guarantee insurance 16,000 Proceeds from sale of salvaged materials 8,000 In Hogan 's December 31, 2014 balance sheet, what amount should be reported as land? A) $838,000. B) $846,000. C) $776,000. D) $812,000.

A

On January 1, 2014, Huff Co. sold $4,000,000 of its 10% bonds for $3,541,184 to yield 12%. Interest is payable semiannually on January 1 and July 1. What amount should Huff report as interest expense for the six months ended June 30, 2014? A) $212,471 B) $240,000 C) $177,064 D) $200,000

A

On January 1, Patterson Inc. issued $4,000,000, 9% bonds for $3,756,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Patterson uses the effective-interest method of amortizing bond discount. At the end of the first year, Patterson should report unamortized bond discount of A) $228,400. B) $206,440. C) $204,000. D) $219,600.

A

On January 2, 2014, a calendar-year corporation sold 8% bonds with a face value of $1,500,000. These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $1,384,000 to yield 10%. Using the effective-interest method of computing interest, how much should be charged to interest expense in 2014? A) $138,860. B) $150,000. C) $120,000. D) $138,400.

A

On September 1, 2014, Halley Co. issued a note payable to Fidelity Bank in the amount of $1,800,000, bearing interest at 10%, and payable in three equal annual principal payments of $600,000. On this date, the bank's prime rate was 11%. The first payment for interest and principal was made on September 1, 2015. At December 31, 2015, Halley should record accrued interest payable of A) $40,000. B) $132,000. C) $66,000. D) $60,000.

A

Storm Corporation purchased a new machine on October 31, 2014. A $2,400 down payment was made and three monthly installments of $7,200 each are to be made beginning on November 30, 2014. The cash price would have been $23,200. Storm paid no installation charges under the monthly payment plan but a $400 installation charge would have been incurred with a cash purchase. The amount to be capitalized as the cost of the machine on October 31, 2014 would be A) $23,600. B) $24,400. C) $23,200. D) $24,000.

A

The numerator of the acid-test ratio consists of A) cash, marketable securities, and net receivables. B) total current assets. C) cash inventory and marketable securities. D) cash inventory and net receivables.

A

Under IFRS, short-term obligations expected to be refinanced can be classified as noncurrent if the refinancing is completed: A) by the financial reporting date. B) either by the financial statement date or before the date the financial statement is issued. C) by issue date of the financial statement. D) after the maturity date of the obligation.

A

Under the effective interest method, interest expense: A) is the same total amount as straight-line interest expense over the term of the bonds. B) is the same annual amount as straight-line interest expense. C) always increases each period the bonds are outstanding. D) always decreases each period the bonds are outstanding.

A

Use the following 8% interest factors for the question(s) below. Present Value of Future Value of Ordinary Annuity Ordinary Annuity 7 periods 5.2064 8.92280 8 periods 5.7466 10.63663 9 periods 6.2469 12.48756 20. Korman Company wishes to accumulate $500,000 by May 1, 2022 by making 8 equal annual deposits beginning May 1, 2014 to a fund paying 8% interest compounded annually. What is the required amount of each deposit? A) $43,525 B) $87,008 C) $50,390 D) $47,008

A

Which of the following costs should be excluded from research and development expense? A)Cost of marketing research for a new product B) Engineering activity required to advance the design of a product to the manufacturing stage C)Modification of the design of a product D)Acquisition of R & D equipment for use on a current project only

A

Which of these is not a major characteristic of a plant asset? A )All of these are major characteristics of a plant asset B) Possesses physical substance C) Acquired for use in operations D) Yields services over a number of years

A

Wilson Co. purchased land as a factory site for $900,000. Wilson paid $80,000 to tear down two buildings on the land. Salvage was sold for $5,400. Legal fees of $3,480 were paid for title investigation and making the purchase. Architect's fees were $31,200. Title insurance cost $2,400, and liability insurance during construction cost $2,600. Excavation cost $10,440. The contractor was paid $2,800,000. An assessment made by the city for pavement was $6,400. Interest costs during construction were $170,000. The cost of the building that should be recorded by Wilson Co. is A) $3,014,240. B) $2, 813,200. C) $2,803,800. D) $2, 804,840.

A

Under IFRS, bond issuance costs, including the printing costs and legal fees associated with the issuance, should be: A) expensed in the period when the debt is issued. B) recorded as a reduction in the carrying value of bonds payable. C) accumulated in a deferred charge account and amortized over the life of the bonds. D) reported as an expense in the period the bonds mature or are retired.

B

10. Liabilities are A) deferred credits that are recognized and measured in conformity with generally accepted accounting principles. B) obligations arising from past transactions and payable in assets or services in the future. C) any accounts having credit balances after closing entries are made. D) obligations to transfer ownership shares to other entities in the future.

B

16. A company gives each of its 50 employees (assume they were all employed continuously through 2014 and 2015) 12 days of vacation a year if they are employed at the end of the year. The vacation accumulates and may be taken starting January 1 of the next year. The employees work 8 hours per day. In 2014, they made $21 per hour and in 2015 they made $24 per hour. During 2015, they took an average of 9 days of vacation each. The company's policy is to record the liability existing at the end of each year at the wage rate for that year. What amount of vacation liability would be reflected on the 2014 and 2015 balance sheets, respectively? A) $115,200; $144,000 B) $100,800; $144,000 C) $115,200; $140,400 D) $100,800; $140,400

B

25. On January 1, 2014, Ann Price loaned $112,695 to Joe Kiger. A zero-interest-bearing note (face amount, $150,000) was exchanged solely for cash; no other rights or privileges were exchanged. The note is to be repaid on December 31, 2016. The prevailing rate of interest for a loan of this type is 10%. The present value of $150,000 at 10% for three years is $112,695. What amount of interest income should Ms. Price recognize in 2014? A) $45,000. B) $11,270. C) $33,810. D) $15,000.

B

3. A series of equal receipts at equal intervals of time when each receipt is received at the beginning of each time period is called an A) annuity in arrears. B) annuity due. C) unearned receipt. D) ordinary annuity.

B

6. Stock dividends distributable should be classified on the A) balance sheet as an asset. B) balance sheet as an item of stockholders' equity. C) income statement as an expense. D) balance sheet as a liability.

B

8. Downing Company issues $4,000,000, 6%, 5-year bonds dated January 1, 2014 on January 1, 2014. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 5%. What are the proceeds from the bond issue? 2.5% 3.0% 5.0% 6.0% Present value of a single sum for 5 periods .88385 .86261 .78353 .74726 Present value of a single sum for 10 periods .78120 .74409 .61391 .55839 Present value of an annuity for 5 periods 4.64583 4.57971 4.32948 4.21236 Present value of an annuity for 10 periods 8.75206 8.53020 7.72173 7.36009 A) $4,173,847 B) $4,175,047 C) $4,000,000 D) $4,173,195

B

A company buys an oil rig for $3,000,000 on January 1, 2014. The life of the rig is 10 years and the expected cost to dismantle the rig at the end of 10 years is $600,000 (present value at 10% is $231,330). 10% is an appropriate interest rate for this company. What expense should be recorded for 2014 as a result of these events? A) Depreciation expense of $300,000 and interest expense of $60,000 B) Depreciation expense of $323,133 and interest expense of $23,133 C) Depreciation expense of $360,000 D) Depreciation expense of $300,000 and interest expense of $23,133

B

An expenditure made in connection with a machine being used by an enterprise should be A) capitalized if it maintains the machine in normal operating condition. B) capitalized if it increases the quantity of units produced by the machine. C) expensed immediately if it merely extends the useful life but does not improve the quality. D) expensed immediately if it merely improves the quality but does not extend the useful life.

B

Darren Company becomes aware of a lawsuit after the date of the financial statements, but before they are issued. A loss and related liability should be reported in the financial statements if the amount can be reasonably estimated, an unfavorable outcome is highly probable, and A) the Darren Company admits guilt. B) the cause for action occurred during the accounting period covered by the financial statements. C) the court will decide the case within one year. D) the damages appear to be material.

B

Dotel Company's 12/31/15 balance sheet reports assets of $9,000,000 and liabilities of $3,750,000. All of Dotel's assets' book values approximate their fair value, except for land, which has a fair value that is $600,000 greater than its book value. On 12/31/15, Egbert Corporation paid $9,150,000 to acquire Dotel. What amount of goodwill should Egbert record as a result of this purchase? A)$150,000 B)$3,300,000 C)$3,900,000 D)$0

B

Fogelberg Company purchased equipment for $25,000. Sales tax on the purchase was $1,500. Other costs incurred were freight charges of $400, repairs of $700 for damage during installation, and installation costs of $450. What is the cost of the equipment? A) $25,000. B) $27,350. C) $28,050. D) $26,500.

B

For 2014, Hammer Company reports beginning of the year total assets of $900,000, end of the year total assets of $1,100,000, net sales of $750,000, and net income of $150,000. The rate of return on assets for Hammer in 2014 is A) 13.6%. B) 15.0%. C) 16.7%. D) 12.0%.

B

Interest cost that is capitalized should A) not be written off until the related asset is fully depreciated or disposed of. B) none of these answers are correct. C) be accumulated in a separate deferred charge account and written off equally over a 40-year period. D) be written off over the remaining term of the debt.

B

Jamison Company purchased the assets of Booker Company at an auction for $4,200,000. An independent appraisal of the fair value of the assets is listed below: Land $1,425,000 Building 2,100,000 Equipment 1,575,000 Trucks 2,550,000 Assuming that specific identification costs are impracticable and that Jamison allocates the purchase price on the basis of the relative fair values, what amount would be allocated to the Building? A) $1,589,190 B) $1,152,941 C) $2,100,000 D) $3,825,000

B

MaBelle Corporation incurred the following costs in 2015: Acquisition of R&D equipment with a useful life of 4 years in R&D projects $800,000 Start-up costs incurred when opening a new plant 140,000 Advertising expense to introduce a new product 700,000 Engineering costs incurred to advance a product to full production stage 500,000 What amount should MaBelle record as research & development expense in 2015? A)$1,300,000 B)$700,000 C)$940,000 D) $1,440,000

B

On December 31, 2012, Nolte Co. is in financial difficulty and cannot pay a note due that day. It is a $1,800,000 note with $180,000 accrued interest payable to Piper, Inc. Piper agrees to accept from Nolte equipment that has a fair value of $870,000, an original cost of $1,440,000, and accumulated depreciation of $690,000. Piper also forgives the accrued interest, extends the maturity date to December 31, 2015, reduces the face amount of the note to $750,000, and reduces the interest rate to 6%, with interest payable at the end of each year. Nolte should record interest expense for 2015 of A) $135,000. B) $0. C) $45,000. D) $90,000.

B

On January 1, 2010, Goll Corp. issued 2,000 of its 10%, $1,000 bonds for $2,080,000. These bonds were to mature on January 1, 2020 but were callable at 101 any time after December 31, 2013. Interest was payable semiannually on July 1 and January 1. On July 1, 2015, Goll called all of the bonds and retired them. Bond premium was amortized on a straight-line basis. Before income taxes, Goll's gain or loss in 2015 on this early extinguishment of debt was A) $20,000 loss. B) $16,000 gain. C) $60,000 gain. D) $24,000 gain.

B

On January 1, 2014, Ellison Co. issued eight-year bonds with a face value of $4,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are: Present value of 1 for 8 periods at 6% .627 Present value of 1 for 8 periods at 8% .540 Present value of 1 for 16 periods at 3% .623 Present value of 1 for 16 periods at 4% .534 Present value of annuity for 8 periods at 6% 6.210 Present value of annuity for 8 periods at 8% 5.747 Present value of annuity for 16 periods at 3% 12.561 Present value of annuity for 16 periods at 4% 11.652 1. The issue price of the bonds is A) $3,558,240. B) $3,534,240. C) $3,998,400. D) $3,539,280.

B

On January 2, 2014, Klein Co. bought a trademark from Royce, Inc. for $1,600,000. An independent research company estimated that the remaining useful life of the trademark was 10 years. Its unamortized cost on Royce's books was $1,200,000. In Klein's 2014 income statement, what amount should be reported as amortization expense? A)$60,000. B) $160,000. C)$120,000. D)$80,000.

B

On January 2, 2014, York Corp. replaced its boiler with a more efficient one. The following information was available on that date: Purchase price of new boiler $140,000 Carrying amount of old boiler 10,000 Fair value of old boiler 4,000 Installation cost of new boiler 20,000 The old boiler was sold for $4,000. What amount should York capitalize as the cost of the new boiler? A) $140,000 B) $160,000 C) $154,000 D) $150,000

B

On July 1, 2014, Nowton Co. purchased machinery for $168,000. Salvage value was estimated to be $7,000. The machinery will be depreciated over ten years using the double-declining balance method. If depreciation is computed on the basis of the nearest full month, Nowton should record depreciation expense for 2015 on this machinery of A) $28,980. B) $30,240. C) $26,880. D) $30,590.

B

Qualpoint provides its employees two weeks of paid vacation per year. As of December 31, 65 employees have earned two weeks of vacation time to be taken the following year. If the average weekly salary for these employees is $1,140, what is the required journal entry? A) No journal entry required. B) Debit Salaries and Wages Expense for $148,200 and credit Salaries and Wages Payable for $148,200. C) Debit Salaries and Wages Payable for $147,600 and credit Salaries and Wages Expense for $147,600. D) Debit Salaries and Wages Expense for $74,100 and credit Salaries and Wages Payable for $74,100.

B

Ringler Corporation exchanges one plant asset for a similar plant asset and gives cash in the exchange. The exchange is not expected to cause a material change in the future cash flows for either entity. If a gain on the disposal of the old asset is indicated, the gain will A) be reported in the Other Revenues and Gains section of the income statement. B) effectively reduce the amount to be recorded as the cost of the new asset. C) effectively increase the amount to be recorded as the cost of the new asset. D) be credited directly to the owner's capital account.

B

Roxy Co., which has a taxable payroll of $600,000, is subject to FUTA tax of 6.2% and a state contribution rate of 5.4%. However, because of stable employment experience, the company's state rate has been reduced to 2%. What is the total amount of federal and state unemployment tax for Roxy Co.? A) $49,200 B) $16,800 C) $24,000 D) $70,200

B

Thompson Company incurred research and development costs of $100,000 and legal fees of $30,000 to acquire a patent. The patent has a legal life of 20 years and a useful life of 10 years. What amount should Thompson record as Patent Amortization Expense in the first year? A) $0. B) $3,000. C)$6,500. D)$13,000.

B

Twilight Corporation acquired End-of-the-World Products on January 1, 2014 for $6,400,000, and recorded goodwill of $1,200,000 as a result of that purchase. At December 31, 2015, the End-of-the-World Products Division had a fair value of $5,440,000. The net identifiable assets of the Division (excluding goodwill) had a fair value of $4,640,000 at that time. What amount of loss on impairment of goodwill should Twilight record in 2015? A) $0 B)$400,000 C)$560,000 D)$960,000

B

Use the following 8% interest factors for the question(s) below. Present Value of Future Value of Ordinary Annuity Ordinary Annuity 7 periods 5.2064 8.92280 8 periods 5.7466 10.63663 9 periods 6.2469 12.48756 19. What will be the balance on September 1, 2020 in a fund which is accumulated by making $20,000 annual deposits each September 1 beginning in 2013, with the last deposit being made on September 1, 2020? The fund pays interest at 8% compounded annually. A) $114,932 B) $212,733 C) $178,458 D) $151,200

B

Why is the liability section of the balance sheet of primary importance to bankers? A) To evaluate the entity's credit quality. B) To assist in understanding the entity's liquidity. C) To evaluate operating efficiency. D) To better understand sources of repayment.

B

11. A company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid on June 30 and December 31. The proceeds from the bonds are $19,604,144. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2014 balance sheet? A) $20,000,000 B) $19,608,308 C) $19,612,642 D) $19,625,124

C

24. Kant Corporation retires its $300,000 face value bonds at 102 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $288,750. The entry to record the redemption will include a A) debit of $17,250 to Gain on Bond Redemption. B) debit of $16,000 to Premium on Bonds Payable. C) credit of $11,250 to Discount on Bonds Payable. D) credit of $11,250 to Loss on Bond Redemption.

C

5. The generally accepted method of accounting for gains or losses from the early extinguishment of debt treats any gain or loss as A) an amount that should be considered a cash adjustment to the cost of any other debt issued over the remaining life of the old debt instrument. B) an amount received or paid to obtain a new debt instrument and, as such, should be amortized over the life of the new debt. C) a difference between the reacquisition price and the net carrying amount of the debt which should be recognized in the period of redemption. D) an adjustment to the cost basis of the asset obtained by the debt issue.

C

A company has not declared a dividend on its cumulative preferred stock for the past three years. What is the required accounting treatment or disclosure in this situation? A) No disclosure or recognition is required. B) Record a liability for cumulative amount of preferred stock dividends not declared. C) Disclose the amount of the dividends in arrears. D) Record a liability for the current year's dividends only.

C

A debt instrument with no ready market is exchanged for property whose fair market value is currently indeterminable. When such a transaction takes place A) the directors of both entities involved in the transaction should negotiate a value to be assigned to the property. B) it should not be recorded on the books of either party until the fair market value of the property becomes evident. C) the present value of the debt instrument must be approximated using an imputed interest rate. D) the board of directors of the entity receiving the property should estimate a value for the property that will serve as a basis for the transaction.

C

At December 31, 2014 the following balances existed on the books of Rentro Corporation: Bonds Payable $3,500,000 Discount on Bonds Payable 280,000 Interest Payable 84,000 Unamortized Bond Issue Costs 210,000 If the bonds are retired on January 1, 2015, at 102, what will Rentro report as a loss on redemption? A) $644,000 B) $350,000 C) $560,000 D) $472,500

C

Bonds which do not pay interest unless the issuing company is profitable are called A) term bonds. B) debenture bonds. C) income bonds. D) secured bonds.

C

Dennis Company purchases Miles Company for $4,200,000 cash on January 1, 2015. The book value of Miles Company's net assets reported on its December 31, 2014 financial statement was $3,800,000. An analysis indicated that the fair value of Miles's tangible assets exceeded the book value by $600,000, and the fair value of identifiable intangible assets exceeded book value by $320,000. What amount of gain or goodwill is recognized by Dennis? A)$920,000 gain. B)$400,000 goodwill. C)$520,000 gain. D)$520,000 goodwill.

C

Glow Co. purchased machinery on January 2, 2009, for $660,000. The straight-line method is used and useful life is estimated to be 10 years, with a $60,000 salvage value. At the beginning of 2015 Glow spent $144,000 to overhaul the machinery. After the overhaul, Glow estimated that the useful life would be extended 4 years (14 years total), and the salvage value would be $30,000. The depreciation expense for 2015 should be A) $42,375. B) $55,500. C) $51,750. D) $60,000.

C

In 2014, Bargain shop reported net income of $5.7 billion, net sales of $175 billion, and average total assets of $70 billion. What is Bargain shop's asset turnover ratio? A) 0.31 times. B) 0.08 times. C) 2.5 times. D) 12.3 times.

C

Muggs Co. includes one coupon in each bag of dog food it sells. In return for eight coupons, customers receive a leash. The leashes cost Muggs $3 each. Muggs estimates that 45 percent of the coupons will be redeemed. Data for 2014 and 2015 are as follows: 2014 2015 Bags of dog food sold 500,000 600,000 Leashes purchased 18,000 22,000 Coupons redeemed 120,000 150,000 The premium liability at December 31, 2015 is A) $45,000. B) $39,375. C) $84,375. D) $22,500.

C

To record an asset retirement obligation (ARO), the cost associated with the ARO is A) expensed. B) included in a separate account. C) included in the carrying amount of the related long-lived asset. D) capitalized over the asset's useful life.

C

On January 2, 2014, Indian River Groves began construction of a new citrus processing plant. The automated plant was finished and ready for use on September 30, 2015. Expenditures for the construction were as follows: January 2, 2014 $ 400,000 September 1, 2014 1,200,000 December 31, 2014 1,200,000 March 31, 2015 1,200,000 September 30, 2015 800,000 Indian River Groves borrowed $2,200,000 on a construction loan at 12% interest on January 2, 2014. This loan was outstanding during the construction period. The company also had $8,000,000 in 9% bonds outstanding in 2014 and 2015. What were the weighted-average accumulated expenditures for 2014? A) $1,066,667 B) $2,000,000 C) $800,000 D) $1,000,000

C

On March 1, 2014, Newton Company purchased land for an office site by paying $1,800,000 cash. Newton began construction on the office building on March 1. The following expenditures were incurred for construction: Date Expenditures March 1, 2014 $ 1,200,000 April 1, 2014 1,680,000 May 1, 2014 3,000,000 June 1, 2014 4,800,000 The office was completed and ready for occupancy on July 1. To help pay for construction, and purchase of land $2,400,000 was borrowed on March 1, 2014 on a 9%, 3-year note payable. Other than the construction note, the only debt outstanding during 2014 was a $1,000,000, 12%, 6-year note payable dated January 1, 2014. The actual interest cost incurred during 2014 was A) $168,000. B) $280,000. C) $300,000. D) $336,000.

C

Porter Resources Company acquired a tract of land containing an extractable natural resource. Porter is required by its purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource. Geological surveys estimate that the recoverable reserves will be 2,000,000 tons, and that the land will have a value of $1,000,000 after restoration. Relevant cost information follows: Land $7,500,000 Estimated restoration costs 1,500,000 If Porter maintains no inventories of extracted material, what should be the charge to depletion expense per ton of extracted material? A) $4.50 B) $3.25 C) $4.00 D) $3.75

C

The rate of interest actually earned by bondholders is called the A) nominal rate. B) coupon rate. C) effective rate. D) stated rate.

C

What is a discount as it relates to zero-interest-bearing notes payable? A) The discount represents the credit quality of the borrower. B) The discount represents the allowance for uncollectible amounts. C) The discount represents the cost of borrowing. D) The discount represents the lender's costs to underwrite the note.

C

When a business enterprise enters into what is referred to as off-balance-sheet financing, the company A) wishes to confine all information related to the debt to the income statement and the statement of cash flow. B) is attempting to conceal the debt from shareholders by having no information about the debt included in the balance sheet. C) can enhance the quality of its financial position and perhaps permit credit to be obtained more readily and at less cost. D) is in violation of generally accepted accounting principles.

C

When the effective-interest method is used to amortize bond premium or discount, the periodic amortization will A) decrease only if the bonds were issued at a premium. B) increase only if the bonds were issued at a discount. C) increase if the bonds were issued at either a discount or a premium. D) increase only if the bonds were issued at a premium.

C

Which characteristic is not possessed by intangible assets? A) Result in future benefits. B) Expensed over current and/or future years. C)Physical existence. D) Long-lived.

C

Which of the following is not a capital expenditure? A) An addition B) A betterment C) Repairs that maintain an asset in operating condition D) A replacement

C

Which of the following nonmonetary exchange transactions represents a culmination of the earning process? A) Exchange of products by companies in the same line of business with no difference in future cash flows. B) Exchange of assets with no difference in future cash flows. C) Exchange of assets with a difference in future cash flows. D) Exchange of an equivalent interest in similar productive assets that causes the companies involved to remain in essentially the same economic position.

C

12. Valley, Inc., is a retail store operating in a state with a 5% retail sales tax. The state law provides that the retail sales tax collected during the month must be remitted to the state during the following month. If the amount collected is remitted to the state on or before the twentieth of the following month, the retailer may keep 3% of the sales tax collected. On April 10, 2014, Valley remitted $135,800 tax to the state tax division for March 2014 retail sales. What was Valley's March 2012 retail sales subject to sales tax? A) $2,660,000. B) $2,741,667. C) $2,716,000. D) $2,800,000.

D

Below is the information relative to an exchange of assets by Stanton Company. The exchange lacks commercial substance. Old Equipment Book Value Fair Value Cash Paid Case I $300,000 $340,000 $60,000 Case II $200,000 $180,000 $28,000 Which of the following would be correct for Stanton to record in Case I? Record Equipment at: Record a gain of (loss) of: A) $300,000 $(20,000) B) $400,000 $40,000 C) $360,000 $40,000 D) $360,000 $0

D

13. The December 31, 2014, balance sheet of Hess Corporation includes the following items: 9% bonds payable due December 31, 2023 $3,000,000 Unamortized premium on bonds payable 81,000 The bonds were issued on December 31, 2013, at 103, with interest payable on July 1 and December 31 of each year. Hess uses straight-line amortization. On March 1, 2015, Hess retired $1,200,000 of these bonds at 98 plus accrued interest. What should Hess record as a gain on retirement of these bonds? Ignore taxes. A) $60,000. B) $56,400. C) $32,400. D) $55,800.

D

14. Parton owes $2 million that is due on February 28. The company borrows $1,600,000 on February 25 (5-year note) and uses the proceeds to pay down the $2 million note and uses other cash to pay the balance. How much of the $2 million note is classified as long-term in the December 31 financial statements. A) $400,000. B) $2,000,000. C) $0. D) $1,600,000.

D

17. Which of the following is not true about the discount on short-term notes payable? A) When there is a discount on a note payable, the effective interest rate is higher than the stated discount rate. B) The Discount on Notes Payable account has a debit balance. C) Discount on Notes Payable is a contra account to Notes Payable. D) The Discount on Notes Payable account should be reported as an asset on the balance sheet.

D

18. Why is the liability section of the balance sheet of primary importance to bankers? A) To better understand sources of repayment. B) To evaluate the entity's credit quality. C) To evaluate operating efficiency. D) To assist in understanding the entity's liquidity.

D

4. Peter invests $100,000 in a 3-year certificate of deposit earning 3.5% at his local bank. Which time value concept would be used to determine the maturity value of the certificate? A) Present value of an annuity due. B) Present value of one. C) Future value of an ordinary annuity. D) Future value of one.

D

An early extinguishment of bonds payable, which were originally issued at a premium, is made by purchase of the bonds between interest dates. At the time of reacquisition, A) the premium must be amortized up to the purchase date. B) any costs of issuing the bonds must be amortized up to the purchase date. C) interest must be accrued from the last interest date to the purchase date. D) all of these answer choices are correct.

D

Angst Company purchased equipment in January of 2004 for $200,000. The equipment was being depreciated on the straight-line method over an estimated useful life of 20 years, with no salvage value. At the beginning of 2014, when the equipment had been in use for 10 years, the company paid $25,000 to overhaul the equipment. As a result of this improvement, the company estimated that the useful life of the equipment would be extended an additional 5 years. What should be the depreciation expense recorded for this equipment in 2014? A) $10,000 B) $6,667 C) $5,000 D) $8,333

D

Arlington Company is constructing a building. Construction began on January 1 and was completed on December 31. Expenditures were $4,800,000 on March 1, $3,960,000 on June 1, and $6,000,000 on December 31. Arlington Company borrowed $2,400,000 on January 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 3-year, $4,800,000 note payable and an 11%, 4-year, $9,000,000 note payable. What is the actual interest for Arlington Company? A) $1,782,000 B) $1,470,000 C) $704,415 D) $1,758,000

D

Both IFRS and U.S. GAAP permit valuation of long-term debt and other liabilities at A) present value discounted at the firm's cost of capital. B) historic costs without reflecting changes in valuation as obligations will be retired at their maturity date. C) current market values of the obligations, based on changes in the discount rate with unrealized gains and losses reflected in a separate account in stockholders' equity. D) fair value with gains and losses on changes in fair value recorded in income in certain situations.

D

Harris Co. takes a full year's depreciation expense in the year of an asset's acquisition and no depreciation expense in the year of disposition. Data relating to one of Harris's depreciable assets at December 31, 2015 are as follows: Acquisition year 2013 Cost $210,000 Residual value 30,000 Accumulated depreciation 144,000 Estimated useful life 5 years Using the same depreciation method as used in 2013, 2014, and 2015, how much depreciation expense should Harris record in 2016 for this asset? A) $36,000 B) $42,000 C) $48,000 D) $24,000

D

Henry Company purchased a depreciable asset for $240,000. The estimated salvage value is $22,000, and the estimated useful life is 10 years. The straight-line method will be used for depreciation. What is the depreciation base of this asset? A) $240,000 B) $22,000 C) $24,000 D) $218,000

D

On January 1, 2014, Ann Price loaned $112,695 to Joe Kiger. A zero-interest-bearing note (face amount, $150,000) was exchanged solely for cash; no other rights or privileges were exchanged. The note is to be repaid on December 31, 2016. The prevailing rate of interest for a loan of this type is 10%. The present value of $150,000 at 10% for three years is $112,695. What amount of interest income should Ms. Price recognize in 2014? A) $15,000. B) $45,000. C) $33,810. D) $11,270.

D

On January 2, 2014, Indian River Groves began construction of a new citrus processing plant. The automated plant was finished and ready for use on September 30, 2015. Expenditures for the construction were as follows: January 2, 2014 $ 400,000 September 1, 2014 1,200,000 December 31, 2014 1,200,000 March 31, 2015 1,200,000 September 30, 2015 800,000 Indian River Groves borrowed $2,200,000 on a construction loan at 12% interest on January 2, 2014. This loan was outstanding during the construction period. The company also had $8,000,000 in 9% bonds outstanding in 2014 and 2015. What were the weighted-average accumulated expenditures for 2015 by the end of the construction period? A) $3,972,000 B) $780,000 C) $3,270,000 D) $2,772,000

D

Paige Co. took advantage of market conditions to refund debt. This was the fourth refunding operation carried out by Paige within the last three years. The excess of the carrying amount of the old debt over the amount paid to extinguish it should be reported as a A) loss, net of income taxes. B) deferred credit to be amortized over the life of the new debt. C) gain, net of income taxes. D) part of continuing operations.

D

Platteville Corporation has the following account balances at 12/31/15: Amortization expense $20,000 Goodwill 280,000 Patent, net of $60,000 amortization 140,000 What amount should Platteville report for intangible assets on the 12/31/15 balance sheet? A)$440,000 B) $140,000 C)$200,000 D)$420,000

D

Putnam Company's 2014 financial statements contain the following selected data: Income taxes $40,000 Interest expense 15,000 Net income 60,000 Putnam's times interest earned for 2014 is A) 4.0 times. B) 5.0 times. C) 6.7 times. D) 7.7 times.

D

When is a contingent liability recorded? A) When the future events are probable to occur. B) When the future events will possibly occur and the amount can be reasonably estimated. C) When the amount can be reasonably estimated. D) When the future events are probable to occur and the amount can be reasonably estimated.

D

Which of the following is not a correct statement about sales taxes? A) If sales taxes are included in the sales account, the first step to find the amount of sales taxes is to divide sales by 1 plus the sales tax rate. B) Many companies record sales taxes in the sales account. C) Sales Taxes Payable is classified as a current liability. D) Sales taxes are an expense of the seller.

D

Which of the following is the proper way to report a gain contingency? A) As an accrued amount. B) As deferred revenue. C) As an account receivable with additional disclosure explaining the nature of the contingency. D) As a disclosure only.

D

Which of the following should not be included in the current liabilities section of the balance sheet? A) Trade notes payable B) Short-term zero-interest-bearing notes payable C) The discount on short-term notes payable D) All of these are included

D

Which of the following taxes does not represent a common employee payroll deduction? A) State income taxes. B) FICA taxes. C) Federal income taxes. D) State unemployment taxes.

D

Which of these is not included in an employer's payroll tax expense? A) F.I.C.A. (social security) taxes B) State unemployment taxes C) Federal unemployment taxes D) Federal income taxes

D

Wilson Co. purchased land as a factory site for $900,000. Wilson paid $80,000 to tear down two buildings on the land. Salvage was sold for $5,400. Legal fees of $3,480 were paid for title investigation and making the purchase. Architect's fees were $31,200. Title insurance cost $2,400, and liability insurance during construction cost $2,600. Excavation cost $10,440. The contractor was paid $2,800,000. An assessment made by the city for pavement was $6,400. Interest costs during construction were $170,000. The cost of the land that should be recorded by Wilson Co. is A) $989,880. B) $996,280. C) $980,480. D) $986,880.

D